Do purchase money mortgages have priority over judgment lien creditors irrespective of timing and notice?

The answer to this question was yes until the recent Kentucky Court of Appeals decision in Hays v. Nationstar Mortgage LLC, No. 2015-CA-000121-MR, 1/6/2017. The case concerned whether the lien of Nationstar was superior to a prior judgment lien filed by Hays for child support arrearages.

Dunn: [A] purchase money lender does not need to search for judgment liens, as purchase money liens automatically have priority whether the purchase money lender had notice of any other interest. Dunn, 205 S.W.3d at 237.

Roberts: “Kentucky is a race-notice jurisdiction” and that “a prior interest in real property takes priority over a subsequent interest that was taken with notice, actual or constructive, of the prior interest.” Roberts, 366 S.W.3d at 407-08.

The Court of Appeals ruled: “When examining these issues de novo, we conclude that Roberts effectively overrules Dunn by implication. Accordingly, the race-notice provisions reaffirmed by Roberts must be applied to the facts before us.”

Risk Management Alert:

Prior to Hays title examiners relying on Dunn often did not check the borrower’s name for pre-existing liens. It is now critical that they do so. Update your title examination checklist to include this requirement. Be sure that everyone in your practice knows of this significant change in real estate law.

Disclaimer: The contents of this Web site are intended for general information purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. It is not the intent of this Web site to establish an attorney’s standard of due care for a particular situation. Rather, it is our intent to advise our policyholders to act in a manner which may be well above the standard of due care in order to avoid claims having merit, as well as those without merit. In the event any statement on the Web site differs from a statement in an issued policy the policy will control.